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Yahoo’s third quarter? Could have been worse

Yahoo confirmed plans to lay off 10 percent of its workforce, while reporting …

It's come to this—when Yahoo slashes 10 percent of its workforce and sees profits slide 64 percent, Wall Street is happy because it could have been so much worse.

As expected, the troubled Internet giant announced plans to slash at least 1,400 jobs as it acknowledged that the deteriorating economy is taking a toll on its business (Read Yang's memo to employees here).

Yahoo made the announcement—part of a plan to reduce costs by $400 million annually—as it reported a 64 percent decline in profit. Third quarter earnings fell to $54.3 million, or 4¢ a share, down from $151.3 million, or 11— a share a year earlier. The company was hit by a $37 million charge from its failed dance with Microsoft, which ended with Yahoo rejecting a Redmond offer of $33 per share. Yahoo shares currently trade between $12-13.

But weak as the company's results were, they weren't as bad as many on Wall Street had expected. And many investors were buoyed by the job cuts, sending Yahoo shares up as much as 7 percent in after-hours trading Tuesday night.

"This is the first step in a longer term effort that will last into 2009 and beyond," Yang said (though it couldn't be determined whether he was speaking in lower case). In addition, Yang said the company would look to cut costs by relocating some of its workers, as well as "consolidating real estate, improving procurement, and standardizing our global technology platform."

Yahoo also reduced its forecast for 2008 revenue to between $7.18 billion and $7.38 billion, down from a range of $7.35 billion to $7.85 billion.

Despite the worsening economic climate, Yang expressed confidence that the company would be able to weather the storm.

"Yahoo is a company that has been through a dramatic down cycle before," Yang said, referring to the collapse of the first internet bubble in 2000.

Highlights on other key issues from the earnings call:

Workforce:
Besides the job cuts, Yahoo said it is going to slow its hiring and
shift new employees to areas around the world which have "lower cost
structures." Translation: Wherever possible, the company is going to be
outsourcing jobs to areas where it can hire workers more cheaply.

Macro issues: Yahoo suffered from the weakening economy, which has caused
advertisers to reduce their budgets. Sue Decker, Yahoo's president,
said the impact of the credit crunch was "quite clear" throughout the
company. "Companies with top-line pressure cut back to protect their
bottom-line results," she said. "We expect slower online advertising
growth as the real impact of the economic slowdown takes hold."

Display
advertising: Yahoo also was hit particularly hard by shrinking display
ad budgets, which are not as resilient as search ad budgets. "Demand
for branded display weakened in the U.S., particularly in finance and
retail areas where marketers are becoming increasingly cautious," Yang
said. The company experienced "weakness in premium display, more than
offsetting search advertising and performance display," Decker added.

Google pact: Yang said both Yahoo and Google have agreed to a brief delay
before implementing their controversial search ad deal while the
Department of Justice continues to review the pact. "We look forward to
bringing the benefits of this pro-competitive agreement to the market
as soon as possible," he said.

AOL: While Yang did not refer
specifically to AOL, he did say the company saw some value in industry
consolidation, "to the extent that we see a way to improve our strength
and improve our position."